Australian LNG producers could win from the US-China trade war

From the Australian Financial Review

China’s threatened tariffs on US liquefied natural gas imports could help Woodside Petroleum, Santos and Oil Search get more than $US25 billion of LNG projects over the line as the world’s fastest growing importer looks elsewhere for supplies to meet surging demand for cleaner fuel.

All three companies are targeting final investment decisions by the end of next year on their respective projects: Woodside’s $US11 billion Scarborough project in Western Australia, Santos’s circa $US4 billion Barossa ventureoff the north coast, and Oil Search’s circa $US12 billion expansion in Papua New Guinea.

All are expected to target long-term customers in China, where the government on Friday flagged its intention to impose a 25 per cent tariff on LNG imports from the US.

“The 25 per cent import tariff on US LNG would make new non-US LNG supply more appealing,” said Wood Mackenzie upstream analyst David Low.

China is the US’s third biggest export market for LNG.

“In Australia, this bodes particularly well for the Scarborough and Caldita-Barossa projects, which would be looking to market gas to China, amongst other destinations, in the next year or so.”

Both Woodside’s Scarborough and Browse projects could benefit if the tariffs go ahead, said EnergyQuest consultant Graeme Bethune. The first stage of the $US20.5 billion Browse venture, in which PetroChina owns a stake, is targeted for a go-ahead in 2021.

Neither Woodside nor Santos would comment on the tariffs on Monday.

Pro-gas policies in Beijing make China “a massive opportunity” for the LNG industry in the US, where the shale revolution has brought about a glut of natural gas and driven prices to historic lows, said Bernstein analyst Neil Beveridge.

But the import tax, if implemented, would make US exports of LNG uncompetitive relative to pipeline gas and oil-linked LNG, he added.

Mr Beveridge said the tariff wouldn’t reduce US LNG export volumes, but would reorient trade flows, pushing more US gas to Europe and other markets, while Middle East and African cargoes would be pushed to Asia, driving up prices.

The smaller independent US LNG players would likely be disproportionately hit by the proposed tariffs because they would have less capacity to rearrange sales contracts, said Josh Stabler at energy advisory firm Energy Edge.

“The larger portfolios will be able to utilise their ability to shift capacity from different supply regions to meet China growth while using US cargoes to meet regions without the tariff, i.e. Japan,” Mr Stabler said.

“Therefore the tariff will benefit market incumbents by increasing barriers for expansion from the primary location with the greatest potential for future development of new LNG facilities over the coming decade.”

Woodside wants to process gas from its Scarborough field at the North West Shelf LNG plant. Michele Mossop

Similarly, US investment adviser Stifel said that while more established US LNG players such as Cheniere could see some delays in profits, it could be “game over” for emerging projects like Tellurian and NextDecade.

Shares in ASX-listed LNG Ltd., which is hoping to build an LNG export terminal in Louisiana, sank 12.3 per cent on Monday.

Stifel said that Chinese LNG demand would not slow down even if the tariffs are implemented because the shift from coal to gas is driven by the high long-term costs to the population from increased pollution.

“So if China … is going to continue to grow its natural gas appetite, the cargoes will simply have to be sourced from somewhere else, be it Qatar, Russia, Australia and Africa,” the firm said.

China commissioned its 20th LNG import terminal this week, in Shenzhen, bringing its import capacity to just over 60 million tonnes a year.


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